In this report, the authors present analyses of production cost differences among privately funded, market-rate apartments and publicly subsidized affordable apartments in California, Colorado, and Texas using a sample of cost data on more than 140 completed projects to identify drivers of higher costs in California policy reforms that can lower production costs and increase housing affordability in the state.

• California is the most expensive state for multifamily housing production in every cost category the authors considered.
• Longer production timelines are strongly associated with higher costs. The time to bring a project to completion in California is more than 22 months longer than the average time required in Texas.
• Municipal impact and development fees vary substantially across states; they are $1,000 per unit on average in Texas, $12,000 per unit in Colorado, and $29,000 per unit in California.
• Key drivers of the remarkably high cost of publicly subsidized affordable housing production in California include requirements for affordable housing developers to pay substantially above-market wages and unusually large architectural and engineering fees, likely related to highly prescriptive design requirements.
• Within California, production costs vary substantially across metropolitan regions—the average cost per square foot in San Francisco is roughly 1.5 times the average cost in San Diego.
• Halving the difference in market-rate production costs between California and Texas could reduce rental prices for new apartments in California by roughly 15 percent.
• If California had Colorado’s production costs for publicly subsidized affordable apartments, the roughly $1.25 billion in recent spending by the state’s four largest funding programs would have produced more than four times as many units.

• California should adopt a policy similar to Texas state law that requires local jurisdictions to approve or deny a proposal for a housing development within 30 days (and proposed projects not approved or denied within 30 days would be presumed to be approved); this reform could meaningfully reduce the 15-month average gap in predevelopment time between California and Texas, leading to a substantial reduction in production costs. California’s builder’s remedy law provides a recent precedent for such a policy in the state.
• Policies to streamline construction timelines, including synchronized rather than sequential inspections, could contribute to reducing the seven-month average gap in construction time between California and Texas.
• Policymakers should consider the negative cost effects of municipal impact and development fees that are roughly ten to 40 times the level observed in Texas against the potential gains from higher property taxes and other local revenue, along with other welfare gains resulting from new housing production.
• The gains from new housing subject to California’s current, strict energy efficiency requirements should be evaluated against the disincentive effects on housing production from higher costs, because even less energy-efficient new housing would represent meaningful gains in energy efficiency relative to the average efficiency of the state’s current multifamily housing stock, which is more than 50 years old on average.

Funding for this research was provided by a generous gift from Dennis Wong to the RAND Center on Housing and Homelessness. This research was conducted in the Community Health and Environmental Policy Program within RAND Social and Economic Well-Being.